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Saving for retirement is the top financial priority of Americans with 93% saying saving for retirement is important, even when it’s financially tough, according to a new Principal survey, Principal Real Life Retirement Journeys, For middle-income households (those with between $50,000 and $99,999) specifically:
- 90% say starting to save when they did was “worth it”
- 77% are savings for retirement
- 7.8% is the average savings rate
- 40% anticipate their retirement will be better than initially envisioned
“Americans should be encouraged to know the priority they have placed on saving for retirement is meaningful and beneficial to their futures,” said Teresa Hassara, senior vice president of workplace savings and retirement solutions at Principal. “Many are within range of a recommended minimum savings rate of 15%1 when you include the typical employer match of 4-6%, which helps put them on the right path for a secure retirement.”
In total, 93% of individuals surveyed said saving for retirement is important, even when it’s financially difficult. More than half said their retirement aspirations were first influenced by family members (65%) and/or friends or peers (52%). However, the survey found employers (9%), financial professionals (9%), and retirement plan service providers (7%) to be increasingly more helpful sources of information when they began saving.
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We asked Hassara about employees’ savings habits and how employers might be beneficial to supporting employees on their retirement journeys.
Q: Why are retirement savings and practices stronger than some Americans might expect?
A: It’s important to recognize that working Americans are taking meaningful steps to prioritize saving for retirement and their financial security. The Principal Real Life Retirement Journeys Survey found 88% of working Americans are saving for retirement with 93% indicating saving for retirement is important even when financially tough.
One reason to believe the retirement savings habits of Americans are stronger than expected is their average savings rate. Nearly 6-in-10 people (58%) are saving at least 9% of their paycheck towards retirement. That is helping a majority of individuals approach, and some exceed, a recommended minimum savings rate of 15% when you include the typical employer match.
An additional sign that savings behaviors are generating positive momentum is when people began saving. On average, survey respondents started saving at 26.5 years old, which is important because time is the biggest advantage individuals have when it comes to saving for retirement. Then, going a little deeper, there seemed to be a positive feeling among survey respondents that their desired retirement is within reach as illustrated by the average age they plan to retire (62.5 years old) and that 46% feel their actual retirement will be better than first envisioned.
Individually, each of these survey findings are encouraging but, in combination, they tell a powerful story of how the U.S. retirement system is working well to create positive retirement outcomes. The combination of access, education, financial wellness tools, and advice services have created meaningful changes in behavior that is delivering progress.
Q: What is the role of employers in helping employees save for retirement?
A: For starters, access to a workplace retirement savings plan is critical. Of the individuals who said they are currently saving for retirement, 89% are utilizing their employer’s retirement plan. This is double the number of people using IRAs (45%) and is three times more than those with a pension (27%).
But access is just the starting point to help employees save for retirement – we must continue working to eliminate all barriers they may have. Automated features play a critical role in moving the needle to help create better outcomes for employees, especially since 94% of employees stay in the retirement plan after being automatically enrolled. Additionally, financial wellness programs can provide valuable resources for non-savers who are struggling to get started or savers who want to increase their contributions. Survey respondents across all income bands expressed a shared challenge of making financial sacrifices to save for retirement. However, those who rate their employer as the most helpful source of information are less likely to say saving for retirement was a financial burden when they started, exhibiting how beneficial financial tools and resources can be to helping people overcome barriers that could be preventing them from reaching their goals.
Q: What can employers do to incentivize non-savers to save for retirement?
A: Our survey found non-savers are motivated to save for retirement (78% said they still plan to save in the future) but require a gentler, more personalized approach. Like savers, they want help with selecting investments, managing a budget, and creating goals when they begin to save. However, non-savers are much less likely to believe in their ability to manage their finances (32% vs. 62%), make decisions about retirement savings (31% vs. 58%), and access financial advice about retirement when needed (34% vs. 62%). This shows that employers have the opportunity as a trusted resource to provide the tools and education to help non-savers.
Related: 401(k) matching, loans, auto-enrollment: Options to incentivize workers to save more
The survey also found that getting help from employers is associated with having the most thorough retirement information. As such, it is important for them to continue working with financial professionals and plan service providers like Principal to educate employees on the value of their retirement benefits and the importance of taking advantage of any matching contributions that are offered. In addition to adopting automated features that make it easier for people to save, employers should reevaluate their communication strategies and educational resources to ensure they are offering an engaging, holistic, and personalized plan that reduces the common barriers to saving for retirement.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
